Recommended Weekend Reading

June 2 - 4, 2023

Here are our recommended reads from reports and articles we read in the last week. We hope you find these useful and have a great weekend.   And let us know if you or someone you know wants to be added to our distribution list.

·       “Why Putin Will Use Nuclear Weapons in Ukraine” General Kevin Ryan (USA-Ret.)/Russia Matters (Harvard Belfar Center for Science and International Affairs)

The former US Military Attaché to the US Embassy in Moscow argues that as Russia’s military increasingly becomes exhausted and depleted, the risk of Russian President Vladimir Putin using tactical nuclear weapons has risen significantly. 

·       “How Biden could “thaw” US Relations with China” Ryan Hass/Brookings Institution

Hass is one of the foremost experts on US-China relations and the co-author of an excellent and timely new book, “US-Taiwan Relation: Will China’s Challenge Lead to Crisis.”  Hass points out in his analysis that there are a few indications that both China and the U.S. might be working their way out of their bitter moods toward each other. Both sides have resumed contact at senior levels and signaled plans to further strengthen bilateral exchanges in the weeks ahead. If it occurs, such a thaw likely will be driven by mutual self-interest. Biden has consistently emphasized the need to lower risk in the U.S.-China relationship and compete responsibly without veering into conflict.  Xi faces mounting challenges, including but not limited to softening economic growth, rising youth unemployment, mounting international wariness of China’s political economy, and simultaneous strains between China and virtually every developed economy. Washington and Beijing also share an interest in laying the groundwork for productive leader-level exchanges when Biden and Xi are together at the Group of 20 in India in September and the Asia-Pacific Economic Cooperation leaders meeting in San Francisco in November.

·       “1 big thing: The inflation indicator tracked by the White House” Axios Macro

Top White House economists are optimistic that sticky inflation will be increasingly less so in the coming months as rapid wage growth continues to cool. The new analysis — shared first with Axios — is part of an emerging consensus that the strong labor market is a key driver behind U.S. inflation. If that's true, the job market might have to loosen up before prices can fall to a more comfortable level.  The White House identified parts of the service economy that are particularly sensitive to wages — think day care centers, auto repair shops, casinos, and more. Others, like health insurance, aren't. Meanwhile, the Fed's preferred inflation gauge, the Personal Consumption Expenditures price index (excluding food and energy), rose 4.7% in the 12 months through April.

·       “Mapping the Semiconductor Supply Chain: The Critical Role of the Indo-Pacific Region” The Center for Strategic and International Studies

Across a diverse range of global opportunities and geopolitical challenges, the semiconductor industry supply chain is increasingly at the center of the story.  While it is truly a global industry, the Indo-Pacific is its most critical region.  This study provides an analysis of the role of the region across various states of the semiconductor supply chain and how it affects the US and other leading economies.

·       “China’s subsea-cable power in the Middle East and North Africa” The Atlantic Council

This report analyzes China’s campaign to make countries in the region more dependent on Chinese networks while reducing its own dependence on foreign cables. For a country that seeks to alter the internet’s physical form and influence digital behavior while exerting supreme control over information flows, China’s growing presence in the Middle East and North Africa’s cable industry is significant because Beijing has the power to shape the route of global internet traffic by determining when, where, and how to build cables.

·       “The future of wealth and growth hangs in the balance” McKinsey Global Institute

The past two decades have generated $160 trillion in paper wealth but sluggish growth and rising inequality. What comes next?  Current tremors in the financial system may signal a shift in how the world borrows, lends, and accrues value, with a wide range of plausible long-term scenarios. We model four economic scenarios—return to a past era, higher for longer, balance sheet reset, and productivity acceleration—to understand what the future might hold for the world’s balance sheet. Three of the potential scenarios are far from ideal—two are “pick your poison,” and the third a double dose. 

·       “Global fertility has collapsed, with profound economic consequences” The Economist

In 2000 the world’s fertility rate was 2.7 births per woman, comfortably above the “replacement rate” of 2.1, at which a population is stable. Today it is 2.3 and falling. The largest 15 countries by GDP all have a fertility rate below the replacement rate. That includes America and much of the rich world, but also China and India, neither of which is rich but which together account for more than a third of the global population. A shrinking population creates problems. The obvious one is that it is getting harder to support the world’s pensioners. Retired folk draw on the output of the working-aged. Whereas the rich world currently has around three people between 20 and 64 years old for everyone over 65, by 2050, it will have less than two. The implications are higher taxes, later retirements, lower real returns for savers, and possibly, a government budget crisis.

Chart of the Week 

America’s Strinking Birth Rate 

The Centers for Disease Control and Prevention’s National Center for Health Statistics reported this week that approximately 3.66 million babies were born in the U.S. in 2022, essentially unchanged from 2021 and 15% below the peak hit in 2007. 

Overall, births are well off the peak of 2007.  The government tallied about 655,000 fewer births in 2022 than the 2007 high of 4.32 million, reflecting ongoing decreases. With still-elevated deaths due in part to the latter phase of the Covid-19 pandemic, the U.S. in 2022 saw only about 385,000 more births than deaths.